Wednesday, May 16, 2007

Nasty Men Still Outwitting Simple Shopper

The Shopper's training manual

“Local public sector officials taking forward PFI projects such as hospitals or schools are often painfully lacking in commercial experience. Staff negotiating the fine print of refinancing clauses in contracts, where the risks to the public sector can be high, must be trained so that they are not outwitted by their commercially-sophisticated private sector counterparts."

The Chairman of the Public Accounts Committee was commenting on their report into the PFI refinancing scandal, where private sector PFI operators have made hundreds of millions, but taxpayers have got very little.

In particular, they looked at the egregious case of the Norfolk and Norwich hospital PFI refinancing. As we know, when the NAO investigated this, they found that Octagon- the private sector consortium that built the hospital- made gains of £82m when the deal was refinanced with additional debt just two years after completion. In contrast the hospital trust received only £34m. The consortium's overall return was thereby boosted to 60% pa, while the trust is now locked into a 37 year contract with a potential £257m termination payment.

They also point out that in 2003, the Office of Government Commerce, which then had responsibility for PFI policy, told the Committee that it expected the public sector to receive £175–£200 million from the voluntary sharing arrangements on refinancing early PFI deals, but up to December 2006 the government had secured the right to gains of only £93 million.

The question is who's to blame? As regular BOM readers may recall, when we blogged this last year, we criticised the PAC chairman for suggesting it was the "unacceptable face of capitalism". We argued you couldn't blame commercial companies for taking advantage of our Simple Shopper: this is the real world and we should not run our public services on the basis that commercial suppliers will offer special soft terms just because our public sector negotiators can't handle grown-up business.

So we're glad to see he's now placed the blame squarely where it belongs- with the Simple Shopper himself.

Sadly, we're not optimistic about his suggested remedy of better training for public sector staff. As we've noted many times, if you're interested enough and good enough to be a proper hardnose commercial negotiator on stuff like PFI, wtf would you want to work for the Commissars?

PSSee here for BOM primer on the poor value taxpayers have had from PFI.

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Despite all the talk of cuts, government still consumes nearly half our national income. Yet many tens of billions of its spending is wasted, with taxpayers made to pick up the tab for a depressing array of overpriced sub-standard services. This is money we can no longer afford, and our National Debt is already at danger level.

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